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Migration Into the EU: Stocktaking of Recent Developments and Macroeconomic Implications
Against the backdrop of the war in Ukraine, immigration into the European Union (EU) reached a historical high in 2022 and stayed significantly above pre-pandemic levels in 2023. The recent migration has helped accommodate strong labor demand, with around two-thirds of jobs created between 2019 and 2023 filled by non-EU citizens, while unemployment of EU citizens remained at historical lows. Ukrainian refugees also appear to have been absorbed into the labor market faster than previous waves of refugees in many countries. The stronger-than-expected net migration over 2020-23 into the euro area (of around 2 million workers) is estimated to push up potential output by around 0.5 percent by 203...
Targeted, Implementable, and Practical Energy Relief Measures for Households in Europe
The recommended way of helping households during the ongoing European energy crisis is to allow price signals to operate freely while providing targeted compensation to the vulnerable. In practice, however, institutional, political, and technical constraints have led many European governments to adopt broad, price-suppressing measures, which impede the adjustment in demand, have high fiscal costs, and widen cross-country gaps in prices. This paper focuses on easy-to-implement, second-best policies. Bonuses or rebates on energy bills (that are not linked to the current volume of consumption) or block tariffs are simple options which would improve on the current policy design in many countries. To avoid stoking inflation, fiscal policy should not add to aggregate demand, so relief for energy bills should be targeted and coupled with offsetting fiscal measures. One option is to reclaim the relief from the better-off through income taxation, which would also make support more progressive.
Education Attainment in Public Administration Around the World
The paper provides a detailed description of a novel dataset on education attainment in public administrations covering the period 1981-2011 for 178 countries. The dataset uses information extracted from CVs for over 130,000 mid to senior level officials from mainly central banks and ministries of economy and finance. Our main finding is that there is little heterogeneity across regions when considering a non quality-adjusted measure of education attainment in public administrations. Adjusting our measure for quality, using a country wide academic ranking, reveals important cross-regional heterogeneity differing from that of standard measures of education attainment for the general populatio...
Informality and the Challenge of Pension Adequacy: Outlook and Reform Options for Peru
Past reforms have put the Peruvian pension system on a largely fiscally sustainable path, but the system faces important challenges in providing adequate pension levels for a large share of the population. Using administrative microdata at the affiliate level, we project replacement rates in the defined benefit (DB) and defined contribution (DC) pillars over the next 30 years and simulate the impact of various reform scenarios on the average level and distribution of pensions. In the DB pillar, the regressive minimum contribution period should be re-thought, while in the DC pillar a broadening of the contribution base and/or an increase in contribution rates would help increase replacement rates relative to the baseline forecast of 25-33 percent. A higher net real rate of return than assumed in the baseline would also have a significant positive impact. In the medium-term, labor market reform to tackle informality, and a broad pension reform to restructure the system and avoid competition between the DB and DC pillars should be a priority. Given low pension coverage, having a strong non-contributory pillar will remain important for the foreseeable future.
The Impact of Natural Resource Discoveries in Latin America and the Caribbean
This paper studies the impact of natural resource extraction in Latin America and the Caribbean (LAC) from a number of angles. First, we exploit a novel dataset on the universe of giant oil and gas discoveries in the region to trace out the cyclical response of macroeconomic variables to discoveries over the short- and medium-run. Second, we use non-stationary panel data techniques to look at the long-run (trend) relationship between GDP per capita and the value of oil and gas production—our results imply that the recent fall in prices could depress GDP per capita by several percentage points. Last, we use Bolivia, which discovered huge gas reserves in the late 1990s, as a case study to apply the cross-country results and to study the impact of discoveries at the subnational level.
A Bottom-Up Reduced Form Phillips Curve for the Euro Area
We develop a bottom-up model of inflation in the euro area based on a set of augmented Phillips curves for seven subcomponents of core inflation and auxiliary regressions for non-core items. We use the model’s disaggregated structure to explore which factors drove the deterioration in forecasting performance during the pandemic period and use these insights to improve on the ability to forecast inflation. In the baseline, the projection for core inflation is centered above 3 percent at end-2023, while headline inflation is expected to drop quite sharply over 2023, with energy base effects pulling inflation down from the currently very elevated levels to below 3 percent by 2023q4. The confidence intervals around these projections are wide given elevated uncertainty. We argue that the bottom-up approach offers a useful complement to the forecasters toolbox – even in the current uncertain environment - by improving forecast accuracy, shedding additional light on the drivers of inflation and providing a framework in which to apply ex post judgement in a structured way.
More Work to Do? Taking Stock of Latin American Labor Markets
We analyze the performance of labor markets in Latin America since the late 1990s. Strong GDP growth during the commodity boom period led to important gains in employment and a fall in the unemployment rate as labor demand outpaced an increasing labor supply. We emphasize the role of informality in the dynamics of labor markets in Latin America. A re-examination of Okun’s law shows that informality dampens changes in unemployment accompanying output fluctuations. Moreover, we present some evidence that countries with higher redundancy costs and cumbersome dismissal regulations, exhibit “excess” informality over and above what would be expected based on their income and educational levels. Labor market reforms could thus contribute to reducing informality and increasing the responsiveness of labor markets to output growth. However, looking at selected case studies of reforms using the synthetic control method, we find mixed results in terms of labor market outcomes.
Structural Reforms, IMF Programs and Capacity Building
This paper investigates the role that International Monetary Fund (IMF) programs and capacity building play in fostering structural reforms. To do so, we exploit two novel datasets on IMF capacity building and structural reforms available for over one hundred IMF member countries over the period 1980 - 2010. The main results are threefold. First, there is a general association between IMF programs and structural reforms but this relationship is not very robust. Second, IMF training leads to an increase in structural reforms but only through IMF programs and only when a significant share of public servants is trained. Third, IMF technical assistance does not significantly lead to more structural reforms but raises the likelihood of completion of ongoing IMF programs. Our results are robust to a large number of checks, estimators and correcting for endogeneity.
Euro Area Inflation After the Pandemic and Energy Shock: Import Prices, Profits and Wages
We document the importance of import prices and domestic profits as a counterpart to the recent increase in euro area inflation. Through a novel consumption deflator decomposition, we show that import prices account for 40 percent of the average change in the consumption deflator over 2022Q1 – 2023Q1, while domestic profits account for 45 percent. The increase in nominal profits was largest in sectors benefiting from increasing international commodity prices and those exposed to recent supply-demand mismatches. While the results show that firms have passed on more than the nominal cost shock, and have fared relatively better than workers, the limited available data does not point to a wide...
The Fiscal Costs of Contingent Liabilities
We construct the first comprehensive dataset of contingent liability realizations in advanced and emerging markets for the period 1990–2014. We find that contingent liability realizations are a major source of fiscal distress. The average fiscal cost of a contingent liability realization is 6 percent of GDP but costs can be as high as 40 percent for major financial sector bailouts. Contingent liability realizations are correlated among each other and tend to occur during periods of growth reversals and crises, accentuating pressure on the budget during already difficult times. Countries with stronger institutions are able to better control and address the underlying risks so that they are less exposed to contingent liability realizations.
